What does a high debt-to-equity ratio imply?

A high debt-to-equity ratio indicates that a company has a larger proportion of debt relative to its equity. This situation typically implies greater financial risk because the company is relying more on borrowed funds to finance its operations and growth. High levels of debt can lead to increased financial obligations, such as interest payments, which can strain a company's cash flow and affect its ability to manage downturns or unexpected financial challenges. In times of economic instability or lower revenues, a company with a high debt-to-equity ratio may face greater difficulty in meeting its debt commitments, potentially leading to financial distress or bankruptcy.

The other choices do not accurately reflect this relationship. For instance, a high debt-to-equity ratio does not signal strong financial stability, as it usually suggests a reliance on leverage. Similarly, it does not indicate higher levels of saved capital or increased investment acceptance, as a company heavily burdened by debt may appear less attractive to potential investors due to the associated risks. Therefore, the correct interpretation of a high debt-to-equity ratio is that it reflects greater financial risk resulting from elevated debt levels.